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Gazprom’s Kovykta Victory A Warning for BP?

gazprom_1831630c.jpgYesterday it was announced that Gazprom had manage to secure the rights to the giant eastern Siberian Kovykta gas field, which will allow it to establish stronger export ties with China, for the somewhat bargainous price of $773 million.  Will Gazprom manage to succeed where former owner TNK-BP failed?  Richard Fletcher in today’s Telegraph says yes, and for reasons that were clear to Russia’s gas export monopoly from the very start:

The problem was that it wasn’t just BP (or City analysts) that recognised Kovykta’s potential. Gazprom had long had its eye on the asset.

In 2007 the Russian group tabled the first of a series of offers. Drawn out negotiations followed. But sealing a deal was never going to be easy.


Gazprom’s control of the area’s only pipeline (and the threat of a $30bn “environmentalfine” on Kovykta by the Russian state) meant selling up was the onlyoption for TNK-BP.

With the two sides unable to agree a price, TNK-BP put the operating companywhich owned the Kovykta field into administration last year sparkingyesterday’s auction.

Gazprom initially claimed it wasn’t interested in bidding. “From thepoint of view of long-term balance we don’t see how gas from Kovykta can beused,” claimed executive Viktor Timoshilov just a few months ago. Youcan only assume that the Russian giant has since figured it out.

As Bob Dudley attempts to complete the proposed tie-up with Rosneft, the saleof the Kovykta field is a timely reminder of the pitfalls of doing businessin Russia.

BP shareholders must hope that the Rosneft venture proves to be moreprofitable – and straightforward – than the investment in Koyvkta.